3 October 2001

WTO AND TRADING IN FOOD INSECURITY

"A great nation is like a great man... He thinks of his enemy as the shadow that he himself casts."
Tao Te Ching, Lao-tzu (abt.551-479 BCE)

Not directly GE but very relevant to the package GM crops form a part of.

EXCERPT: Internationally, food is being traded by powerful multinational companies. By passing on the reins of the nation's food security to these companies and the trading blocks through a policing system under the WTO, India is witnessing a gradual collapse of food self-sufficiency and the scrapping of the public distribution system, the very foundations of food security. It is quite clearly visible that the new trade regime in agriculture only aims at eliminating the hungry and not hunger, the small and marginal farmers and not unsustainable agriculture. Added to this is the agreement on trade-related intellectual property rights (TRIPs) and the sanitary and phytosanitary measures, the dominance of Indian agriculture becomes complete.
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From: Hindu Business Line, New Delhi/Chennai/Bangalore/Hyderabad, India; Oct 1, 2001

WTO and Agriculture
TRADING IN FOOD INSECURITY

By Devinder Sharma*

For any tourist, Kerala, in down south India, is an attractive destination. The tropical climate and the unique backwater systems have added charm to its pristine beauty. Add to it the stupendous growth in literacy and the overall growth in human development, Kerala has rightly earned the sobriquet: "God’s own country".

But over the past few years, ever since economic liberalisation became the development mantra, Kerala has been on the receiving end. Flooded with cheap and highly subsidised agricultural imports, its agrarian economy has been thrown out of gear. Whether it is the import of palm oil or rubber or coffee, almost every aspect of the State's socio-economy has been negatively impacted.

Coconut prices have crashed, down from Rs 10 to Rs 2. Rubber has plummeted from Rs 60 to Rs 16 and coffee from Rs 58 in 1999 to Rs 30 per kg in 2000. Even spices have not been spared, with pepper prices falling from Rs 2,600 to Rs 1,300 per quintal in the consecutive period. While Kerala farmers are naturally a worried lot, the changing global intellectual property rights (IPRs) regime is certain to further throttle domestic agricultural research, which in turn will adversely impact agricultural production including that of spices. And the repercussions will eventually be felt by the industry, which will find the export market restricted and monopolised by the patent-holders.

The growing disenchantment over the gradual destruction of livelihoods from the import of cheaper edible oil that had destroyed the State economy, found its reverberation in the recent electoral debacle. Kerala, which has traditionally been a bastion of the left parties, delivered an electoral verdict in early 2001 that defies all political logic. While the left was routed out, Kerala has brought in a badly battered Congress. Not that the Congress had done anything great to deserve the ride to power or the left had done anything suicidal. The fact remains that people were aware that except for making public statements and decrying the central government for these imports, the State government had done practically nothing to safeguard farmers’ interest. The erstwhile State government paid a price for ignoring the ground realities.

Kerala is not alone. The destructive fallout from the emerging global trade paradigm are being felt all over the country, though not in the same magnitude. But before we talk of the bitter political harvests and the growing disenchantment with the World Trade Organisation (WTO), it is important to understand why and how the market rules play against the Indian farmers and for that matter, farmers in the developing countries. Let us take the case of India.

It is now official. Six years after the WTO came into existence, on January 1, 1995, the anticipated gains for India from the trade liberalisation process in agriculture are practically zero. The Ministry of Agriculture as well as the Ministry of Commerce have officially admitted that the hopes from an international regime that talked of establishing a fair and market oriented agricultural trading system have been belied.

Let us first try to understand what went wrong and where. WTO’s Agreement on Agriculture (AoA) had incorporated three broad areas of commitments from member states, namely in market access, domestic support and export subsidies. The underlying objective being to correct and prevent restrictions and distortions in world agricultural markets. On the other hand, the trading regime has ensured that developing countries take time-bound initiatives to open up their domestic markets for cheap and highly subsidised imports of agricultural commodities in the name of encouraging competition. Six years later, it is now established that these measures have only protected the farmers and the farming systems of the developed countries

Market access: Increased market access was the hallmark of the free trade agenda. It was aimed at force opening new markets for agriculture exporters. The AoA required all countries to allow a certain minimum market access for every agricultural product at five per cent for developed countries and four per cent for developing countries. Southern nations, with low cost of production, were always told that with the developed countries would have to open up their markets for cheaper food imports as a result of which the developing countries would gain enormously.

A recent study by the Food and Agricultural Organisation of the United Nations (FAO), however, concludes that there has been hardly any change in the volume of exports. Tariff peaks or in other words high import duties continue to block exports from the developing countries. Tariffs still remain very high, specially in case of cereals, sugar and dairy products. Sanitary and phytosanitary measures, which were enforced to ensure quality of the imported products, actually continue to be a major barrier in diversifying exports in horticulture and meat products. Selective reduction in tariffs by the developed countries have also blocked the exports from developing countries. And on top of it, only 36 countries (all developed) have the right to impose special safeguard provisions if agriculture imports distort their domestic market. And this provision has been used 399 times till 1999.

India was forced to either phase out or eliminate the quantitative restrictions (QRs) on agricultural commodities and products latest by April 1, 2001. India has, therefore, opened its market and in turn made the farming community vulnerable to the imports of highly subsidised products. Already, cheaper imports of skimmed milk powder, edible oils, sugar, tea, arecanut, apples, coconut etc have flooded the market (see box).

Domestic support: Clever manipulation of their subsidy reduction commitments has in reality increased the support to farmers in the developed countries. In the United States, subsidy to a mere 9,00,000 farmers has increased by 700 times since 1996. Two years before President Bill Clinton left the office, the US had provided an additional US $ 26 billion dollars to its farmers. In absolute terms, the farm support in the OECD countries increased by 8 per cent to reach the staggering figure of US $ 363 billion in 1998. In the European Union (EU), direct payments to farmers after the reforms initiated in March 1999 to the Common Agricultural Policy, now account for 126 per cent of the net income of cereal producers and 129 per cent for the bovine meat producers. And this falls under the "blue box". Explicit and implicit support to farmers is therefore protected under the various colours of the protection boxes: green box, amber box and blue box.

Box
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Destroying India’s Oilseeds Revolution

India recorded a spectacular increase both in area under oilseeds as well as its output, with production doubling from 11 million tonnes in 1986-87 to around 22 million tonnes in 1994-95 thereby justifying the term "yellow revolution". The near self-sufficiency of edible oils was, however, not palatable to the economic pundits as well as the so-called market forces.

But this was not palatable to the World Bank. While acknowledging that oilseeds had demonstrated a rate of growth that exceeds the national trend, it actually called for discarding the policies that had brought about the positive change. World Bank’s argument was that India lacked a "comparative advantage" in oilseeds when compared with the production trend in the United States and the European Union, and should, therefore, be importing edible oil. It was, however, known that the support prices paid to Indian groundnut and mustard growers were less than the support prices paid to the groundnut and mustard farmers in the US and Europe.

What the World Bank, however, did not say was the selling price of India’s oilseeds per tonne was equivalent to the production cost of one tonne of oilseeds in the US. Moreover, the production cost in the US would have been still higher if the massive amounts of subsidies that it doles out to its farmers were to be withdrawn. In fact, it is the US which actually suffers from a "comparative disadvantage" given that the fact that its subsidies distort the price. The US and more importantly the EU should, therefore, be importing edible oil from India every year given its cheap cost of production.

Ignoring the ground realities, and blindly following the World Bank’s flawed prescription, (under pressure since India was restructuring its economy as per the SAP) India started the process of phased liberalisation of edible oil imports from 1994-95. And this was at a time when edible oil exporting countries like Malaysia, Indonesia and Brazil were preparing to flood the Indian market with palm and soya oil. Two years later, the negative consequences of liberalising the edible oil policy became clearly visible. With the country’s edible oil import bill soaring to nearly US $ 1 billion during 1996-97, it was the Ministry of Agriculture, which pressed the panic button.

While the wholesale prices of edible oils rose by an estimated 14 per cent, production slackened. The only beneficiary of the government’s "disastrous" policy was the private trade which imported sunflower oil and palmolein at about Rs 22,000 per tonne and after blending with groundnut and mustard oils, sold it for Rs 38,000 per tonne. The free import regime neither benefitted the farmer nor the consumer.

But then, the government is committed to protect the economic interests of the oilseeds trade and industry. Or else how can one explain that the decision to allow one million tonne of soyabean in 1998 at a time when the US was burdened with an unmanageable glut in production. Such was the government’s desperation to import soyabean, and that too at a time of no apparent crisis, that it was willing to overlook the fact that the imported seed was coming with five exotic weeds and at least 11 viral diseases. Moreover, this would have been the first major consignment of genetically engineered grain to be imported without any regard for health and environmental risks associated with the manipulated gene.

In a complete reversal of the objectives enshrined in the ongoing Technology Mission for Oilseeds, imports of vegetable oil between November 1998 and July 1999 have risen three-fold. Compared to the import of 1.02 million tonnes imported in 1997-98, the imports multiplied to 2.98 million tonnes. In 1999-2000, India imported five million tonnes of edible oil thereby once again emerging as one of the biggest importer of edible oil.

Since oilseeds is a crop of the drylands, the adverse impact is being felt by millions of farmers languishing in the harsh environs of the country. With their most economic livelihood lost to edible oil imports, it shouldn’t come as a shock if more and more oilseed growers begin to commit suicide.

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Even if these boxes remain eligible for developing countries, the fact is that not many of them have the budgets to support agriculture. In India, we are being told that our Aggregate Measure of Support (AMS), a measure of the subsidies that are provided to agriculture, being negative (against the upper limit of ten per cent) we can still raise our subsidies to farmers. In reality, India is committed to do away with agricultural subsidies under the Structural Adjustment Programme of the World Bank and the IMF. In any case, India provides only one billion dollar worth of indirect subsidies to 550 million farmers!

It was anticipated that due to reduction in domestic support in developed countries, cereal production would shift from developed countries to developing countries. Empirical evidence, however, shows that such a trend is not at all visible. In fact, all indications (and efforts of World Bank/IMF) point towards making the developed countries the hub of cereal production. The Bretton Woods institutions have been asking developing countries to diversify to cash crops as a pre-condition for advancing loans. In other words, while the developing countries shift from cereals to cash crops like flowers and vegetables, they are left with no option but to import staple foods. Moreover, with such massive subsidies intact, and with the QRs lifted, developing countries are sure to be inundated with food imports - a process that has already initiated further marginalisation of farming and farm communities.

Export subsidies: WTO enables only 25 countries to provide export subsidies for their agricultural products and commodities. Other countries, which do not have agricultural export subsidies, like India, cannot make any new provisions for it. Export subsidies that need to be pruned, as per a formula, are not provided in India. On the other hand, the US continues to find legitimacy for even export credits, which are actually used to promote and push American agricultural exports. There are others, like Australia and New Zealand, which are not willing to do away with commodity export boards. In any case, developed countries provide 90 per cent of the global export subsidies.

The Indian Ministry of Agriculture acknowledges that despite the rules being defined, the expected gains have eluded the developing countries. It was expected that with the removal of trade distorting measures, agricultural exports from the developing countries will increase. This did not happen. In fact, India has on the other hand seen a massive increase in the imports of agricultural commodities and products - from about Rs 50,000 million in 1995 to over Rs 1,50,000 million in 1999-2000 - a three-fold increase. In edible oils alone, the import bill has soared to Rs 90,000 million. The so-called fair trading system has also not helped efficient producers in realising a higher price for their products. On the contrary, prices of most agricultural commodities are declining in the world markets.

Public stockholding of grains: Unlike the European countries where the public distribution system (PDS) was discontinued after the Second World War, its importance has grown for an overpopulated and poverty-stricken country like India. It was with the basic objective of curbing consumption and ensuring an equitable distribution of available food supplies, especially in the deficit areas and among the poorer strata of society, that the PDS was introduced more than fifty years ago. How effective the PDS has been as a welfare measure can be gauged from the Seventh Plan document of the Indian Planning Commission: "The PDS will have to be developed that it remains hereafter a stable and permanent feature of our strategy to control prices, reduce fluctuations and achieve an equitable distribution of essential consumer goods."

AoA allows developing countries to use public stockholding of foodgrains for food security purposes "provided that the difference between the acquisition price and the external reference price (i.e. the international price) is accounted for in the AMS". At the same time, member countries have been asked to identify the beneficiaries on the basis of "clearly-defined criteria related to nutritional objectives".

In other words, AoA has circumscribed the capacity of the government to intervene in the market to ensure needs of the food security. After all, if India were to acquire foodgrains for stockholding under PDS at the international prices, the budget allocations will mount beyond manageable limits. Any tinkering with the public stockholding of grains is sure to lead to food insecurity, as has been demonstrated in many countries, which have done away with public stockholding of grains. And yet, the government is making desperate attempts to decentralise the public stockholding of foodgrains in an obvious attempt to dismantle the main plank of what is called the "famine-avoidance strategy".

Internationally, food is being traded by powerful multinational companies. By passing on the reins of the nation’s food security to these companies and the trading blocks through a policing system under the WTO, India is witnessing a gradual collapse of food self-sufficiency and the scrapping of the public distribution system, the very foundations of food security. It is quite clearly visible that the new trade regime in agriculture only aims at eliminating the hungry and not hunger, the small and marginal farmers and not unsustainable agriculture. Added to this is the agreement on trade-related intellectual property rights (TRIPs) and the sanitary and phytosanitary measures, the dominance of Indian agriculture becomes complete.

Consider the following situation: At the time of Independence in 1947, India had about five million farms. By the early 1980s, the number had risen to about 90 million, and the estimate is that there are now some 100 million farms in the country. Today, every fourth farmer in the world is an Indian, and nearly half the country’s land is being utilised for crop production.
Already the population has crossed the one billion mark. At the same time, India also has 20 per cent of the world’s animal population. Given the dismal malnutrition standards, more than 320 million people, mostly women and children suffer from chronic hunger.

The choice, therefore, is limited. The only viable path towards sustaining the natural resource base to satisfy the demands of the growing population for food and other agricultural commodities lies in enhancing the potential of domestic agriculture.

Food security box: Among the numerous measures being suggested in the ongoing review of AoA, much of the emphasis is on creating yet another box for food security as a mechanism for safeguarding developing country’s vulnerability to cheaper imports. European Union has also been supporting some of the developing countries’ proposal to protect the food security needs. But what is essentially being overlooked is the way food security is now being defined. As the United States earlier declared, and which Britain blindly supports, food security no longer is linked to food self-sufficiency. Food security now implies that the needs of any developing country can be better met from trade.

What is being forgotten is that a developing economy like India needs a food security system that looks much beyond management of scarce supplies and critical situations. Food security systems are evolved as an integral part of a development strategy bringing about a striking technological change in food crops, providing effective price and market support to farmers and deploying a wide range of measures to generate employment and income for the rural poor with a view to improve their level of well-being, including better physical and economic access to foodgrains. What is not being accepted is that free trade in food products and agricultural commodities does not help the survival of farming communities in developing countries like India, where it forms the backbone of the economy.

Food security, therefore, can only be ensured if the developing countries have provisions and powers to re-enforce QRs. No amount of tinkering with suitable clauses on market access, domestic support and export subsidies is going to serve the food security needs of the developing countries. Two measures, which will protect the food security needs of the developing countries while at the same time bring in equity and justice under the continuing "disagreement on agriculture" as part of the global free trade regime, are:

* Food security can only be ensured if the right to impose QRs is restored for the developing countries. This can only be sanctioned under a multilateral system. The ongoing review of AoA is, therefore, the right forum to accord approval to this most effective provision for ensuring food security.

* The elimination of subsidies, including domestic support, and those for agricultural exports need to be linked to the removal of QRs. As long as the subsidies, both explicit and implicit, are not brought down to zero in the developed world, the developing countries should have the provision to continue with the QRs. After all, border protection is the only way for the developing countries to avoid being inundated by cheap and highly subsidised food and agricultural commodity imports.  #

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*(Devinder Sharma is a New Delhi-based food and trade policy analyst. Among his recent works include two books: GATT to WTO: Seeds of Despair and In the Famine Trap. Responses can be emailed at: dsharma@ndf.vsnl.net.in)